All about your interest rate, SOFR, and LIBOR

The type of interest rate you have and the index used will determine how much interest you’ll pay over the life of your loan. Here’s what you need to know about interest rates, indexes, and the transition from LIBOR to SOFR.

What’s the difference between a fixed interest rate loan and a variable interest rate loan? How do I know what type I have?

Interest is the amount you’re charged for borrowing money. When you pay back a loan, you pay it back with interest. How much interest you pay back depends on your loan’s interest rate.

  • Fixed interest rates stay the same for the life of the loan, no matter what.
  • Variable interest rates may go up or down due to an increase or decrease in the benchmark index the lender used to calculate the interest rate.

Both your rate and rate type can be found on your billing statement and loan documents.

If you need more help, you can learn more about interest rates or choose which rate is right for you.

How is the interest rate on my variable rate loan calculated?

For a variable rate loan, most lenders start with a benchmark index and add a margin. For instance, if the lender uses the London Inter-bank Offered Rate (LIBOR) as its index and then adds a 5% margin, the rate will be quoted as “LIBOR + 5%.” While economic conditions may make the benchmark index go up or down, the margin added will usually remain the same.

You can find your loan’s index and margin on your promissory note and loan documents. 

What is LIBOR?

The London Inter-bank Offered Rate (LIBOR) is a benchmark index used by many lenders, including Sallie Mae, to calculate the interest rate for variable rate loans. LIBOR is being phased out and, eventually, won’t be available for use with any consumer loan products. As a result, we’re working diligently to implement a replacement index.

  • New variable rate Sallie Mae loans applied for on or after April 1, 2021, use the Secured Overnight Financing Rate (SOFR) as the benchmark index, which will be reflected in the promissory note and loan documents.
  • Existing variable rate Sallie Mae loans that use LIBOR as the benchmark index (“legacy loans”) will be converted to SOFR no later than June 30, 2023. It’s our intention to provide our legacy loan customers with a conversion that’s as seamless as possible and to minimize any change in the overall cost of the loan.

What is SOFR?

The Secured Overnight Financing Rate (SOFR) is the benchmark index that many U.S. banks and financial institutions, including Sallie Mae, will use to replace the London Inter-bank Offered Rate (LIBOR).

New variable rate Sallie Mae loans applied for on or after April 1, 2021, use SOFR as the benchmark index, which will be reflected in the promissory note and loan documents.

How will my fixed rate loan be affected by the transition from LIBOR to SOFR?

Fixed rate Sallie Mae loans won’t be affected by the transition. The rate will remain the same as originally agreed upon in your Final Disclosure.

How will my variable rate loan be affected by the transition from LIBOR to SOFR?

Existing variable rate Sallie Mae loans that use the London Inter-bank Offered Rate (LIBOR) as the benchmark index (“legacy loans”) will be converted to the Secured Overnight Financing Rate (SOFR) by June 30, 2023. It’s our intention to provide our legacy loan customers with a conversion that’s as seamless as possible and to minimize any change in the overall cost of the loan.

New variable rate Sallie Mae loans applied for on or after April 1, 2021, use the Secured Overnight Financing Rate  (SOFR) as the benchmark index, which will be reflected in the promissory note and loan documents.

For more information, you can check out this FAQs document, published by the Alternative Reference Rates Committee, a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York.

We’ll publish more updates and announcements as the conversion nears.

How will the LIBOR/SOFR change affect how much I owe/pay on my loan?

New variable rate Sallie Mae loans applied for on or after April 1, 2021, use SOFR as the benchmark index. Costs for these loans will be reflected in the loan documents and won’t be affected by the conversion of legacy loans from LIBOR to SOFR.

Existing variable rate Sallie Mae loans that use the London Inter-bank Offered Rate (LIBOR) as the benchmark index  (“legacy loans”) will be converted to the Secured Overnight Financing Rate (SOFR) by June 30, 2023. It’s our intention to provide our legacy loan customers with a conversion that’s as seamless as possible and to minimize any change in the overall cost of the loan.